Descending Triangle Pattern is a bearish chart pattern used in technical analysis that is created by drawing one trend line connecting the lower highs and a second horizontal trend line connecting the lows. Sometimes, traders observe a move below the trendline’s lower support as this indicates that downside momentum is building and a breakout is imminent. After the breakdown, the trader goes into a short position and aggressively helps push the asset price even lower.
The Descending Triangle Pattern is a trend among market participants because it clearly shows that demand for an asset, derivative, or chart is weakening. When the price breaks below lower support, it indicates that the downward momentum is likely to continue or become stronger. It also allows traders to make huge profits over a short period and can form an uptrend reversal pattern, but it is generally seen as a bearish continuation pattern.
How to Trade
Most traders are looking to start short positions after a high volume breakout of the trend’s lower support line in the Descending Triangle Pattern chart. Generally, the chart pattern’s price target is equal to the entry price minus the vertical height between the two trendlines at the breakdown time. The upper trend line resistance also serves as a stop-loss level for traders to limit potential losses.
The limitation is the potential for fake damage. There are even situations where the trend line needs to be redrawn because the price action breaks in the opposite direction – no chart pattern is perfect. If the breakdown does not occur, the stock may rebound to retest the upper trend line resistance before moving lower again to retest the lower trend line support level. The more often the price hits the support and resistance levels, the more reliable the chart pattern will be.